No matter what you call it, a ‘short focused visit’, ‘technical talks’ or a ‘fact finding mission’, the bottom line is that the bailout of Ireland and its broken banking system is now underway.
Teams of experts from the European Commission, the European Central Bank and the IMF, the same groups that brought you the Great Greek bailout of 110 billion euros earlier this year, are bound for Dublin, and hopefully a smaller, but just as significant settlement to the situation.
The news helped calm worried global markets which recovered their poise after Tuesday’s nasty sell off.
A convincing deal with Ireland is needed to stop pressure spreading to Portugal, Spain and Belgium, according to most commentaries.
Also at risk the financial strength of the European Central Bank which has been funding the banking systems (and therefore the economies) of Greece, Ireland, Portugal and to a lesser extent, Spain, for much of this year.
It has been accepting increasingly lower quality assets to keep the banking systems of these countries alive, which in turn has raised the risk levels in its balance sheet, and stopped it from moving to unwind its liquidity supporting measures introduced in some cases three years ago.
So a deal with Ireland and rightsizing and fixing its dud banks is essential.
After all it was the implosion in Ireland’s banks that saw countries around the world rush to guarantee their banking systems in October 2008 as the financial system staggered from the collapse of Lehman Brothers and then the sharp recession and credit freeze.
So a deal that convinces everyone is vital, although it will cost Ireland. As the Financial Times said it "represents a further blow to Irish hopes it can ride out its debt crisis alone, although Dublin has yet to accept money".
And the FT and other London papers also reported that there are signs Britain, which is not in the eurozone, is thinking of making direct loans to Ireland of its own as part of (but apart from) an EC rescue package.
The reports said the UK government was thinking of making billions of pounds of loans available to help its nearest neighbour ride out the problems.
The International Monetary Fund said late Tuesday that it will participate in a "short and focused" consultation on Ireland along with the European Commission and the European Central Bank. The IMF said that the meeting will be held "in order to determine the best way to provide any necessary support to address market risks".
It added that it was asked to participate in the consultation by the Irish authorities.
Irish banks have grown increasingly reliant on funding from the European Central Bank, as other commercial banks have been reluctant to lend to them.
The Bank of Ireland, the country’s largest lender, last week said it had suffered a 10 billion euro outflow of deposits from early August until the end of September. It has covered this outflow with higher borrowings from the ECB.
Allied Irish Banks, which will be more than 90% owned by the Irish Government when a recapitalisation is completed later this year, is due to issue a trading update Thursday night our time which could expose the extent of the problem.
It is the biggest basket case, with the largest share of the black hole known as Irish banking.
Government officials put the cost of cleaning up the banking system as high as 50 billion euros, equal to about a third of Ireland’s annual GDP, but that is not a definitive forecast and the national government has been struggling with a new budget and austerity package to pay for a new round of aid for the banks.
Ireland’s budget deficit is 32% of gross domestic product this year, the biggest in the zone and ten times the supposed 3% limit (exceeded by every member of the zone in the last two to three years, including Germany). (Greece is a mind numbing 15.4% this year, much higher than forecast, but Ireland has overshadowed that news.)
“This can be regarded as an intensification of preparations of a potential programme in case it is requested and deemed necessary,” said Olli Rehn, the EU’s top economic official, speaking after a Brussels summit of finance ministers from the 16 countries that use the euro, newsagencies reported.
The speed of the move from no visit to a full fledged aid team took around three hours.
From the end of the eurozone finance ministers meeting in Brussels (Ireland’s minister was late because of fog) when no rescue was revealed to late Tuesday night when the scope of the group was announced, saw the Irish government go from continuing denial to acceptance.
"As late as Monday evening, when fog-bound Irish Finance Minister Brian Lenihan arrived two hours late for crunch Brussels talks, following days of pressure driven by the ECB, his Prime Minister Brian Cowen was insisting there was no request for emergency funding, the FT reported.
"But a little over three hours later – a blink of an eye in Brussels time – Lenihan admitted that the final decision on whether to call in the cavalry was imminent.
"The government did not commit to enter a facility," Lenihan said, "but there have been serious disturbances" on markets.
The EU made it clear the plans would focus on revamping Ireland’s banking sector.
"We will act in a determined and coordinated way if necessary to ensure the stability
